Inflation Slows in Brazil as Central Bank Signals Continued Interest Rate Hikes

Investing.com -- Brazil's annual inflation rate unexpectedly slowed in the first half of December as central bank officials plan significant interest rate hikes until March. According to official data released on Friday, consumer prices rose by 4.71% compared to the previous year, falling below the median forecast of 4.83% predicted by economists in a Bloomberg survey. Prices increased by 0.34% compared to the previous month.

In other economic news, Brazil's unemployment rate fell to 6.1% in the three-month period ending in November, the lowest level since the data series began in 2012. In response to these economic conditions, the Brazilian central bank raised interest rates to 12.25% this month. The bank is also signaling plans to extend its tightening cycle, aiming to increase the benchmark Selic rate to its highest level in eight years.

Factors driving these changes include rising meat prices and inflation in the service sector that exceeds the 3% target. Additionally, the weakening Brazilian real is increasing pressure on industrial product prices. Despite these challenges, a strong labor market supports consumer demand and contributes to economic growth projected to outperform expectations in 2024. However, policymakers indicated that the disinflation process has stalled.

Gabriel Galipolo, who is expected to become the central bank president in January, stated that any deviation from the bank's guidance would require a convincing reason. Despite high interest rates, according to a central bank report published on Friday, credit balances increased by 1.2% in November. Policymakers expressed concerns about stronger-than-expected credit flows, calling for caution as individual default rates remain at 5.4% and household indebtedness hovers around 48%.